Shares of the iShares MSCI South Korea Capped ETF (NYSEArca: EWY), the largest U.S.-listed South Korea exchange traded fund, are off half a percent today on reports that Samsung’s smartphone sales are faltering in China.
Squeezed at the high end by bitter rival Apple (NasdaqGS: AAPL) and at the low end by Chinese upstarts such as Huawei and Xiaomi, Samsung saw its popularity in China cut in half from the second quarter of 2013 to the second quarter of 2015 and has suffered a similar drop since then, according to the Financial Times. Just 7.4% of prospective Chinese smartphone buyers are expected to purchase a Samsung phone, the FT reports.
With Samsung accounting for 20.4% of EWY’s weight, it is no wonder investors are focused on the company and South Korea’s MERS outbreak rather than the Bank of Korea paring interest rates Thursday to 1.5%, the central bank’s fourth such reduction in 10 months.
Those issues are also hampering EWY’s currency hedged rivals, the Deutsche X-trackers MSCI South Korea Hedged Equity ETF (NYSEArca: DBKO) and the WisdomTree Korea Hedged Equity Fund (NasdaqGM: DXKW). Both ETFs are trading slightly lower today, though outperforming EWY. Samsung has dominant positions in those ETFs as well, accounting for 20.5% of DBKO and 8.1% of DXKW. [Muted Reaction to Rate Cut for South Korea Hedged ETFs]
Thanks to Bank of Korea’s accommodative ways, DBKO and DXKW, like scores of other single-country currency hedged ETFs, have topped their unhedged rivals this year. The South Korea currency hedged ETFs are up an average of 2.7% year-to-date, roughly two and a half times to 1.2% gain posted by EWY.